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Aug 24, 2010Science and Technology
Time for a Patent Exchange
The time has come for companies to find more innovative ways to avoid disputes over intellectual property. Everything is upside down and wrong way around in the heavyweight bouts that occur over patent portfolios. The combatants and not the viewing audience, have to expend hundreds of thousands, if not millions of dollars, on intellectual property litigation. Combatants begin shelling out big dollars from the prediscovery phase of proceedings and the expenses continue to pile up with Markman hearings, discovery, expert witnesses and the list goes on and on, stretching to the nearest bank. Then as claims and counterclaims pile up it often becomes clear that there is no championship belt or bragging rights to be won in court. Such was the outcome of the recent boxing match between Microsoft and Salesforce.com. In that bloody bout there was no real winner. The details of the settlement have not been disclosed to the public, but certain Microsoft products are now covered by the intellectual property portfolio of Salesforce.com and certain Salesforce.com products are now covered by Microsoft's IP portfolio. If only they could have negotiated an agreement before both parties engaged in the expensive process of patent litigation.

 When one considers the root cause of many of these disputes over patents, it becomes clear that a vibrant patent exchange would go a long way in reducing conflict over intellectual property. The root cause of many patent disputes is the divide created by the asymmetrical interests of parties focused on controlling the intellectual property they own and parties seeking to produce goods that may consist of components and processes protected by the intellectual property owned by others. The owners of patents have the incentive to create barriers to prevent the unauthorized use of their intellectual property, while producers of goods have the incentive to resist any barriers that affect their ability to deliver their goods to the market in a timely fashion. As a result, it is inevitable that disputes will occur between owners of intellectual property and producers. And the greater the incidence of disputes between the parties, the more profound will be the resultant market failures experienced. Inventors may be forced to focus on defending their intellectual property portfolios instead of developing new innovative products. Producers may be delayed in releasing a relevant product to the market while they secure intellectual property rights for what might be a minor component of the actual product. Valuable money is spent on litigation that could be spent on the research and development of new inventions and products.

 In order to reduce the incidence of disputes over patents, a system is required to efficiently address the differing incentives of the two groups. Presently patent aggregators like Intellectual Ventures and RPX have stepped in as middlemen to broker the interactions between patent owners and producers. Many of these companies have amassed intellectual property portfolios worth billions of dollars. Their activities support innovation by compensating inventors and allowing inventors to focus on inventing instead of having to deal with the protection of intellectual property portfolios and the associated headaches. The activities of companies like Intellectual Ventures and RPX can also be beneficial to producers. Patent aggregators have helped to centralize and standardize the process of securing intellectual property rights. Instead of having to negotiate licensing agreements with a variety of intellectual property owners with a variety of temperaments, operational policies and negotiation strategies, producers can approach one source whose method of dealing with intellectual property issues is more predictable. However, companies like Intellectual Ventures try to keep their intellectual property portfolios secret which reduces transparency in the market. While Intellectual Ventures and other similar companies overall have a positive impact on the market for intellectual property, the most effective system for brokering intellectual property rights is a vibrant patent exchange. A vibrant patent exchange can facilitate greater transparency and liquidity in the private exchange of intellectual property rights.

 A vibrant patent exchange, accessible online, would allow for a more transparent and public presentation of intellectual property portfolios, and would facilitate liquidity in the market by allowing for quicker market clearing of intellectual property. The positives of a patent exchange would reduce the incidence of disputes over intellectual property and would help to harmonize the asymmetrical incentives of patent owners and producers. Life in the world of intellectual property law may become more boring and less interesting with expensive intellectual property litigation occurring in the courtroom less often, but I suppose that is a price worth paying for fostering greater innovation and for increasing the speed with which producers can release products to the market place.
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